Tech Mahindra Limited (TECHM.NS) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tech Mahindra Limited Q3 FY '26 Earnings Conference Call. We have with us today, Mr. Mohit Joshi, Chief Executive Officer and Managing Director, Tech Mahindra; and Mr. Rohit Anand, Chief Financial Officer, Tech Mahindra. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Joshi, MD and CEO for Tech Mahindra. Thank you, and over to you, sir.

Thank you. Good morning and good evening. I welcome all of you to our earnings call for the third quarter of FY 2026. We're starting the calendar year on a very positive note. The third quarter has delivered a strong performance with most of our targeted market segments contributing meaningfully to our results. Most importantly, deal momentum has remained robust during the quarter. We recorded our highest quarterly deal bookings in the last 5 years, our highest deal wins on a last 12 months basis in the last 5 years and our largest deal win in Europe in the comms industry. This underscores the strength of our client relationships, the relevance of our capabilities and our ability to deliver long-term value at scale. Before moving to our third quarter business performance, I just wanted to touch briefly on this mega deal win in Europe. This is a strategic engagement with a leading European telco, one of the largest wins in the company's history with a total contract value exceeding $500 million over 5 years. This multiyear partnership is about a comprehensive modernization of the client's application across both the CIO and CTO domains, aimed at accelerating innovation, strengthening digital resilience and achieving AI-led operational efficiencies enabled by our deep domain expertise and proven transformation capabilities. This win further strengthens our leadership position within the telecom vertical. Let me now turn to our business performance for the quarter. Revenue grew 2.7% year-on-year and 1.5% Q-o-Q on a reported basis and 1.3% Y-o-Y and 1.7% Q-o-Q on a constant currency basis, marking our fastest quarterly growth in the last 3 years. This performance was driven by a broad-based growth across comms, manufacturing, hi-tech, retail and health care. Operating margins expanded by 290 basis points year-on-year to 13.1%, underscoring the progress enabled by our improved operating disciplines and the quality of our revenue growth as we have maintained pricing discipline and enhanced our revenue mix. The communications vertical grew 4.7% year-on-year during the quarter. We are seeing signs of stability across the U.S., coupled with the stabilization of top client spending. Europe is expected to move from a phase of stability into a growth phase supported by the large deal win. We believe the comms vertical is well positioned to be one of our growth verticals as we move into 2027. BFSI declined 0.8% year-on-year, primarily due to higher-than-normal furloughs during the quarter and the passing of annual productivity gains to the large infrastructure contract in the rest of the world, which impacted revenues. BFSI demand remained favorable. We continue to make inroads in engaging clients with tailored solution offerings, and we continue to see strong demand across transformation, experience, data analytics, cybersecurity, coupled with AI adoption. We expect BFSI growth to follow a more strategic -- a more steady trajectory in the coming quarters as seasonal factors normalize. Manufacturing continued its strong trajectory this quarter, building on the strong momentum from the previous quarter with a year-on-year growth of 11.7%. As stated earlier, we are seeing good traction in the aerospace and industrial segments in the U.S., while in Europe, growth was supported by the ramp of a large automotive client during the quarter. The U.S. automotive segment continues to remain in wait-and-watch mode, and we expect demand trends to turn more positive over the medium term. The hi-tech vertical declined 4.6% Y-o-Y. However, it showed positive momentum during the quarter. The Q-o-Q was positive, driven by engineering services, particularly in the semicon segment. That said, we expect the hi-tech sector to remain volatile as companies continue to operate under cost pressure and exercise caution in their IT spending. Retail, travel and logistics continued to perform, delivering also 11.7% year-on-year growth, supported by strong traction in logistics and above normal seasonality in the BPS business for retail. On a geographic performance basis, the Americas grew by 2.1% Y-o-Y. Europe delivered a strong growth of 11.2% Y-o-Y, supported by the large deal ramp in European auto. Revenue from the ROW declined by 4% Y-o-Y, primarily on account of furlough and annual productivity gains. That said, our priority markets within the rest of the world that we have called out earlier, grew 12.9% Y-o-Y, reflecting our continued focus on selected markets, which would better contribute to growth in the future as our mix continues to shift. And as we've shared previously, these priority markets are primarily ANZ, Japan, Singapore and Indonesia. We added 3 $50 million clients year-on-year, reinforcing the strength and scalability of our client relationships. Additionally, revenue from our $20 million-plus clients, a key focus area for us, continue to significantly outpace the company average. The performance underscores our focused approach to scaling strategic clients and deepening long-term partnerships by bringing tailored solutions to clients and applying the distinctive domain expertise of our experienced staff. AI continues to be a growth pillar of our strategy, and we support clients in moving across from the experimentation to the execution phase at scale. We are seeing AI increasingly embedded across large enterprise engagements, driving business experience, process and operations transformation, IT build and change as well as IT operations. Client programs are shifting from pilots to scaled multiyear initiatives that are integrated into their operating models. In line with our partnership with -- in line with this, our partnership with Google positions us well to accelerate enterprise adoption of Gemini Enterprise leveraging Gemini 2.5 multimodal models to drive human-centered innovation and scale AI adoption across global enterprises. We have also signed an MOU with the University of Texas and Dallas for AI-led innovation, skill development and research. We will launch our first Makers Lab in the U.S. in Dallas, focusing on pushing the boundaries of AI, data science, GenAI, agentic AI, quantum computing, cybersecurity and cognitive network innovation. Our deal wins this quarter stand at $1,096 million, including the large deals shared earlier. This represents a robust 48% year-on-year growth on an LTM basis. This strong performance is a testament to the focused investments we have made in strengthening our sales engine, our solution-based go-to-market offerings and the growing relevance of our AI-enabled capabilities, which are resonating well with clients and contributing meaningfully to these wins. Other notable deal wins include our selection by a global HCM SaaS company to provide implementation and customer support services across their product portfolio. This engagement leverages TechM's HCM and CX Centers of Excellence, along with capabilities in AI automation, solution configuration and data integration to drive greater efficiency, scalability and innovation, resulting in enhanced customer experience and optimized cost. We were selected by a leading European aerospace manufacturer as a strategic partner to provide support engineering across all aircraft programs. The services includes an end-to-end capability for aircraft operators and MRO, leveraging Mahindra's -- Tech Mahindra's deep expert in aeronautics and strong delivery capabilities. This collaboration will ensure comprehensive support engineering across all aircraft programs. We were selected by a leading U.S.-based comms provider to lead its transformation and systems integration initiatives. This strategic engagement focuses on consolidating operations under a single trusted partner, modernizing legacy systems and reducing technical debt through automation and best practice. Leveraging Tech Mahindra's proven delivery excellence and deep expertise, this collaboration will drive cost optimization, accelerate growth and enable scalable talent deployment through a core-flex model. We were selected by a U.S.-based health care provider as a strategic partner to lead its enterprise digital transformation. This engagement includes optimization, simplification, cloud migration and transformation to unified tech stack to deliver better experience, cost savings and business transformation in a managed services environment. Selected by a leading U.S.-based banking institution as a strategic partner to modernize its enterprise-wide payments platform, incorporating real-time rail capabilities across markets, cash management and wealth management, leveraging Tech Mahindra's COE. Awards, as I mentioned during my last earnings, we marked our 39th anniversary on the 24th of October 2025 with the launch of our brand refresh. Since then, the refreshed brand has been well received across key stakeholders and has reinforced our positioning across innovation and AI-led capabilities. Further reinforcing the strength of the brand, we received the Best Brands 2025 award at the ET NOW Best Brands Conclave by ET Edge. I'm proud that our refreshed brand encapsulates who Tech Mahindra is in the AI era, agile in execution, bold in vision, collaborative in culture and with clients and discerning in our decisions. This branding evolution positions us as the future-ready transformation partner. Enterprises trust to navigate digital reinvention with intelligence and speed. At its core, our refreshed brand reinforces our promise to help clients scale at speed through AI-led innovation and precision. Last quarter, we successfully concluded the third session of the Global Chess League, reinforcing our commitment to innovation, strategic thinking and global engagement. Over time, these efforts support brand equity, talent attraction and differentiated market presence, creating sustainable value for our shareholders. Tech Mahindra has again been recognized as a Global Sustainability Leader in the S&P Global Dow Jones Sustainability Index. We have proudly regained our #1 position globally in the TSV IT Services segment. We've also been included in the prestigious A list for both the Carbon Disclosure Project, Climate Change and CDP Water Stewardship 2025, a testament to our collective commitment to sustainability, transparency and environmental stewardship. As we close, I would like to highlight the launch of our new culture model, Limitless Together, which brings our employee value proposition to life. Limitless Together reflects our belief that when we unite with purpose, support each other and push boundaries, there's no limit to what we can achieve. It is more than a phrase. It defines how we work, grow and succeed as one team. As Margaret Mead had once famously said, never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has. I believe that this alignment is translating to stronger execution and that each quarter's performance takes us a step closer to our FY '27 goals. We expect to grow higher than the peer average by the end of FY '27 while progressing towards a 15% EBIT margin for FY '27. The strong quarter reinforces our confidence that we are on the right path and building sustained momentum towards our long-term aspirations. With that, I hand you over to Rohit to take you through the financial performance.

Thank you, Mohit. A warm welcome to everyone joining us today from across geographies. Turning to our performance for the third quarter for fiscal year 2026. This was a well-rounded quarter with majority of our growth engines coming together to deliver a strong set of results. Our revenue for the quarter stood at USD 1,610 million, representing a 1.5% sequential growth and a 2.7% year-on-year growth on a reported basis. On a constant currency basis, the revenue increased 1.7% Q-o-Q and 1.3% Y-o-Y. The constant currency growth this quarter was driven by 1% increase in service revenue and seasonality, net of furloughs and the remaining contribution was on the back of large deal execution in European auto, which will normalize next quarter. In INR terms, revenue was at INR 14,393 crores compared to INR 13,995 crores in the previous quarter, an increase of 2.8% on a sequential basis and an 8.3% Y-o-Y basis. For the quarter, our operating profit was $211 million with operating margin expanding by close to 100 basis points to 13.1%, marking the ninth consecutive quarter of margin expansion. Gross margin this quarter expanded by 120 basis points Q-o-Q driven by improvement in our fixed price productivity program and volume growth. In INR terms, operating profit reached INR 1,892 crores, representing a robust year-on-year growth of 40.1%. These results reflect disciplined execution, sustained focus on efficiency across the business while maintaining momentum in top line growth. Other income for the quarter had a loss of $2.4 million, primarily on account of ForEx losses. As of 31st December, our hedge book stood at $1.05 billion compared to $1.33 billion in the previous quarter. Based on hedge accounting, the mark-to-market loss for the quarter was close to $40 million, out of which $13.9 million was taken to P&L and the loss of $26.3 million went to reserves. Our effective tax rate for the quarter was 25.7%, while the normalized ETR, as we mentioned before, stays close to 27%. Our profit after tax margin before exceptional item for the quarter was 9.2%, up 180 basis points on a Y-o-Y basis. Exceptional item for the quarter relates to onetime provision of USD 30 million in accordance with the new wage code notification. Through disciplined capital allocation and sharper execution, we strengthened our return on capital employed to 26.9%, reflecting the business that is not just growing, but growing efficiently. On a YTD basis, our free cash flow to operational PAT is at 123%. During the quarter, free cash flow was $194 million, driven by strong collection efficiency and continued improvement in our working capital management. Our DSO decreased 4 days on a quarter-on-quarter basis, driven by a reduction in our unbilled receivables. Our total deal wins in the quarter stood at $1,096 million, reflecting a growth of close to 48% on a last 12-month basis. The quarterly deal wins this quarter is the highest, as Mohit mentioned, in the last 5 years. As we move ahead, we remain focused on sustaining our operating rigor, strengthening execution and delivering our F '27 strategic goals, where we continue to remain on track. With this, I hand it back for Q&A to the moderator.

[Operator Instructions] Our first question is from the line of Kumar Rakesh from BNP Paribas.

Good to see all-round performance. My first question was on the BFSI side, which you spoke about higher than usual furloughs and productivity pass-through. So what led to this higher than usual furloughs? Is there any subsegment or client-specific factor which drove that? And also is the productivity pass-through done entirely for the quarter? Or is there something more to come into the next quarter?

Yes. Thanks, Rakesh. Look, I think if I look at the BFSI perspective, I just want to call out a couple of things, right? And I'll address your specific questions. But the first is that our BFSI business is compared to our own business is relatively small, right? So a small change in a couple of clients is -- tends to get amplified in terms of the percentage numbers. And there is a lot of underlying good news within the BFSI numbers. What I want to point out is, for instance, we have added up a huge number of -- or a significant number of logos over the past quarter. And I just want to call out a couple of them. So for instance, in APJ, we signed up one of the largest Japanese banks. We won a transformation deal in wealth for one of the largest banks in Singapore. In Europe, we signed up a global preferred supplier list with one of the largest global insurers and a new MSA and project wins with one of the world's largest private banks, again in Europe. In the Americas, we successfully renewed a long-standing infra network support and transformation contract with an American insurer. So there is a lot of momentum that is happening on the ground. Now in terms of the furloughs that really had a quarter-on-quarter impact in some markets like in Canada, for instance, which is an important market for us, we saw with some of our clients higher furloughs than we had seen in the last year, for instance. Now this could just be dependent on their project frequency or their own budgeting cycles. As far as the productivity benefit for a large client that we've spoken about, again, the productivity step down because it's a multiyear contract, you have to take a step down every year. We don't expect it to spill through into the next -- into the current quarter. And we expect to get back to our quarter-on-quarter growth trajectory. I just want to stress that our ambitions for BFSI remain unchanged. And while this quarter has been weak, there is underlying positive movement in terms of client acquisitions and deal activity.

I was actually going to ask about the same thing on the deal win side as well. Is it fair to say that your deal win mix for BFSI would be higher than your revenue mix? I think you alluded that you have been winning a lot of new logos. So that's a fair conclusion to make, right?

Well, it's a fair to make overall, not specifically for this quarter. In this quarter, I would say that our deal wins have tilted more towards telecom and hi-tech candidly. We have had a lot of significant renewals from a BFSI perspective, which is also very important. For instance, we renewed a long-standing infrastructure contract, as I mentioned, with an American insurer. In terms of net new, no, that would not be true for this quarter.

Got it. Yes. My second question was on the headcount. So sequentially, there is some reduction in headcount. Was that move to manage the productivity pass-through and keep the cost structure under control? Or is there something more to that?

No, I don't think there's any more to that. Look, what I will say is that we have called out from the beginning of this transformation program that one of the places where we see very significant levers to drive transformation is in our fixed price portfolio, right, which is over half of our revenue. And so as we drive productivity into our fixed price programs, we'll obviously releasing a lot of existing talent there. And then rather than hiring fresh talent, we are largely using this pool. And because of the new sort of software infrastructure that we have created within the company, we have much better visibility of our bench and our talent pool than we previously did. So redeploying those 2 projects, which is why we are also seeing growth, right? We're also growing rather than shrinking. And we have chosen not to backfill the talent that has -- that would be leaving. And so on the one hand, you are getting people freed up from fixed price projects who are being redeployed, resulting in both margin growth and profit growth. On the other hand, where there is attrition, we are first choosing to redeploy our existing fixed price pool. And thanks to our new software infrastructure, we have much better visibility of individual level talent and where they can be redeployed.

Our next question is from the line of Nitin Padmanabhan from Investec.

Congrats on a very strong quarter. I had a couple. So on the telecom deal, which you mentioned, is the entire $500 million net new because it looks like it will drive significant growth for Europe next year. The second is from a BFSI perspective, how big is payments for us considering all this -- the recent thing around the credit card, what you call, rates being capped at 10%. Do you think that becomes a headwind for us or it's not a meaningful part of the portfolio? And finally, with this large win in some form, does it sort of impact margins as we start executing this? And has this already started executing?

Well, thanks for those questions. So I'll take them one by one. So telecom, yes, the revenue that we have called out is all net new. While this is an existing customer, the number that we have included in our large deal wins is only the net new component, right? So we have not -- we have excluded the existing revenue component over here. This large deal, again, has been signed, but we expect the actual delivery of this to start in the first half of the next financial year. So it should start kicking in relatively early in the new financial year. As far as your question on BFSI is concerned, while we do have a very large payments practice, our exposure with the actual issuers is somewhat limited. A lot of our exposure is to the payment networks, and we don't see it having a sort of a near-term impact. Obviously, this credit card interest rate cap is just now -- just a proposal as it follows through into actual legislation and then into IT budgets, we'll be able to give you a clearer picture. But as of now, our exposure is largely to the networks and not to the actual providers. On the margin impact of the large deals, look, we have always been very clear about the fact that we do not want to do large deals that lose us money. And so we have continued to stay very disciplined from a pricing and from a profitability perspective. And while obviously large deals involve execution challenges that could dilute margins, we have not upfront signed a money losing deal. We will not do that.

Our next question comes from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management Company.

Mohit, congrats on a great set of numbers. So the large deal in European telecom that in itself should add around 1.6% growth if it was to ramp up relatively early in FY '27. And on a YTD basis, your net new TCV booking was up almost 45%. In general, there is a sense of improvement in the discretionary demand. So with these factors in the background, do you now believe reaching high single-digit kind of revenue growth in FY '27 is a possibility?

Yes. So I think -- maybe I'll just start off and then Mohit will add on, on the next year visibility as well. So on the large deal, I think it's obviously not linear in terms of the way it's going to be happening. And the way Mohit explained, it will ramp up through the year, starting beginning of the financial year. So it will take time to ramp it up, right? So I think it will not be uniform over the 5-year period. So the impact on next year revenue is not going to be equal to the 1.6%. It will be lower than that at a company level. So -- and when we look at it, of course, it helps us with more visibility towards F '27. And we'll have to continue -- as I mentioned before, continue to drive similar results over the next couple of quarters to drive more visibility and comfort around where we want to be. But Mohit can add more on F '27 as well.

Yes. No, I think, look, it's too early to give a number for F '27 because we all saw what happened last year between Jan and March. But on the whole, we are seeing an improvement in the tech spend environment, which is also reflected in our numbers and the peer numbers. I think more importantly, I'm really delighted about the fact that if I look at our client list, right, and I look at our clients that give us more than $20 million of revenue, we are consistently growing in that pool. And that really reflects why we are so much more confident about our financial performance because large clients also are our most profitable clients. And there's a huge opportunity to sell our multiple service lines there, right? So that is one particular great source of confidence for us. The momentum that we are seeing in our largest clients that are consistently growing faster than the rest of the company. It is when large clients grow consistently slower than the rest of the company that you have to fill up your revenue with mid-market or with higher-risk clients. This is a huge source of strength for us going forward.

Sure, Mohit. And my second question is some of your peers started disclosing some AI metrics, which give confidence to investors on how the AI opportunity is panning out. Any quantitative or qualitative metrics you can share on your AI portfolio, which can give us the confidence on the trajectory we are charting out here?

Yes. Actually, that's a good question because we were asked this in the media sessions as well. See, the challenge is, right, that either you go very narrow, right, which is, let's say, the revenue that we get from either doing direct AI consulting work or the money that we get from building models or -- either large language models or small language models for our clients, right? And then you're talking about a very small number. Or you go very extensively, which is you include everything that has to do with delivering productivity, let's say, using GitHub Copilot or clients where you've infused AI, which then comes to almost 100% of the clients. So we have to figure out something which is meaningful. Now over here, because we've given this a lot of thought, we have published a white paper along with Forrester that you may have seen that came out about a week ago, which is about building a new pricing model itself, where the pricing for human labor and the pricing for digital labor is very clearly distinguished. And the pricing for digital labor is then based on token consumption, right? So if you're doing a testing project, there's a certain amount of effort that comes in from human labor, let's say, a program, a test lead or a test analyst and a certain amount of revenue that comes in from the use of testing specific or assurance-specific agents, right? So we have built that model. We have validated it with Forrester, and we have taken it to a few clients as we start winning deals there and revenue starts to flow, that could be one great model because there, it's very clear what's coming from digital labor. But until that happens, we'll have to think of some metrics, which will probably be AI infusion for our top 20 clients. I can say with a great degree of assurance that like our peers, we're almost at 100% adoption there because it is impossible to find a Fortune 1000 client that does not use AI. And so therefore, when we're working with that client, you're not using either your own tooling or their own tooling. I just feel that nobody has really come up with a metric, which is candidly credible and auditable.

Fair enough. And maybe a quick last one from my side. With the deal bookings being very strong for the last 4 quarters, how do you see the incremental deal pipeline? Is there signs of exhaustion? Or is it still good?

Well, I think the deal pipeline still looks pretty good at the start of the year. Obviously, these things tend to be lumpy. And if you recollect, in Q1 of this year, I had actually -- when this question was asked, when are your deal wins going to start converting to revenue? We had said that these deal wins will start converting to revenue from the second half of the year onwards. And as we've closed Q3, you've seen that, that is true. So I do feel that the deal pipeline is still strong. It will continue to be lumpy. So you may see a quarter-on-quarter fluctuation. But overall, we're happy with the pipeline and our odds of winning these deals.

Our next question is from the line of Rod Bourgeois from DeepDive Equity Research. As we're not receiving a response from the current participant, we will move to the next participant in the queue. Our next question is from the line of Rishi Jhunjhunwala from IIFL.

Mohit, one question around your BPO segment, right? I mean if you look at over the past 3 years, the growth there has been really strong when we compare it to the IT services business. And if we look around, there are a lot of concerns around this part of the business generally across the value chain given the risks around AI. So one question is what has driven growth in here for us? And what do you think are potential risks to this part of the business given how much supportive this has been to our overall growth? And secondly, on -- from a profitability perspective, it hasn't really been similar story. So what do you think are the reasons on that?

Maybe I can answer profitability first, Mohit, and then you can talk about the growth. So Rishi, on profitability, as we mentioned earlier, right, if you look at the overall trend, we also had some divisions that we moved to BPS, right? In BPS, the mortgage processing unit in the U.K., et cetera. They were relatively dilutive. So there was a comparative dip there, right? But from there, post the integration, they've been consistently increasing on margins. [indiscernible] This quarter, there is a onetime that they had because of which segment is down, but our operating performance is still Q-o-Q improvement if you exclude that. And we see that trajectory for BPS to continue over the next quarters.

Yes. As a whole, look, I think I have always been very bullish about our BPS business, that's for a couple of reasons. One is we have a really strong leadership team in BPS led by Biren. And at the end of the day, this business is very much based on the quality of your leadership and therefore, the solutions that we're able to develop. I think the BPS business has also gained from the huge infusion of technology and specifically AI and automation that we've been able to infuse because of being a large IT player. So everything that we're doing from a TechM Orion perspective in terms of agentic AI or the work that we're doing to build large and small language models is feeding into the capabilities of our BPS team to become more effective and therefore, win deals from pure-play BPO providers who may not have that set of capabilities, right? We see this very clearly, for instance, when we're pitching against maybe a pure-play BPO for a banking back office deal, right, where our ability to be able to show the level of automation and agentic AI capability far exceeds what a pure play may be able to provide. I do feel that as long as this business continues to go up the value chain and be able to be more solution-driven rather than purely sort of bumps on seats driven, that business will continue to grow. And so we remain bullish about the long-term possibility of this business. Biren and team have also entered into new areas where we are able to generate significant revenue. For instance, one of our key capabilities in BPS that is increasingly emerging is our Saffronic capability, right, which is our ability to do short digital movies and a lot of the work on the animation side that is winning them clients across the world. So the BPS capabilities continue to increase. And we are also driving a greater cross-sell between our existing IT and BPS clients.

Got it. And just one question, maybe it was asked earlier and I missed it, but just on the wage hike cycle, have you guys thought about if and when we would want to do that?

Yes. So on the wage hike cycle, look, candidly, with the new labor code having come in, we are studying the implications of that because it has implications on how wages are structured as well. And therefore, how the wage hike would actually play through. This is something that we will continue to examine along with our CHRO, Richard Lobo, and the rest of the team, and we expect to be able to decide once we have the required information. But there is nothing that we can share at this time.

Our next question comes from the line of Rod Bourgeois from DeepDive Equity Research.

Okay. Great. Yes. You guys have set a target to grow at or above your peers, their average by fiscal '27. And you've now hit that target. Our data says you beat the peer average by about 1.7 percentage points when you look at organic constant currency growth results. So question is, do you see this as an improved growth position relative to your peers that should be sustainable going forward at this point as you are now close to fiscal '27?

Thanks, Rod. So look, I think when we had set the plan, it certainly looked like a really ambitious plan because we were at the bottom of the pile in terms of growth. And so therefore, setting a path for exceeding the peer average was seen as an aggressive plan. And I'm happy with the progress that we've made over the past 2 years. What really makes me -- makes us confident that this is credible is, first and foremost, the quality of the leadership team that we have assembled. I believe that we have really built a world-beating team in TechM. The second is that we have focused the growth on our largest accounts, right? And so therefore, it is stickier because a lot of the growth is coming from selling new service lines to existing clients, so new design capabilities to existing clients and new AI and data capabilities to existing clients. As I've shared previously, our top accounts, that is accounts with more than $20 million in revenue are growing significantly higher than the company average. And so therefore, there is stickiness because this is not one-off revenue from marginal clients. And the third factor that I wanted to call out is our large deal book, a large and increasing large deal book also gives us a greater visibility of revenue for the future. So we're confident that going into F '27 that we will be able to fully meet our promise of growing faster than our peer average. And then hopefully, over time, building that momentum, there is a high degree of confidence there.

Okay. Great. And then if I could dive further into the comms vertical, especially in light of the large deal win in Europe, can you give us more color on your outlook for that vertical in particular? And how much of your outlook is a function of what's happening in the vertical overall versus your ability to capture share?

Thanks, Rod. So look, I think the comms vertical is very interesting because at the end of the day, it is our largest single vertical. And it is very important that we maintain and grow our relevance in this vertical. I do feel that for the comms vertical, we have quite a unique proposition because we're the only player that has the IT capabilities, but we also have the network capabilities and increasingly, a lot of the opportunities are emerging on the network side. And we have BPS and software capabilities, right? So in Comviva, which has increasingly won a number of Tier 1 clients for our BSS solution, for our marketing analytics solution, we are able to sell that in Europe and in the Americas. So first and foremost, I feel that we have -- we're really the only player to have a comprehensive and complete portfolio from a comms perspective, IT and BPO, network services and software. So that is a winning combination. In Europe, specifically, we see a lot of consolidation opportunities because most of our clients still have a very long tail of partners. And as they consolidate, like they did in the mega deal that we referred to earlier, we're getting increased opportunities. We also see a lot of opportunities with the comms sort of technology providers. In the U.S., we don't see so much of a consolidation opportunity because really the vendor landscape is already significantly consolidated. But we are seeing, as opposed to what we were seeing in '23 and '24, a slight loosening of purse strings. I would not break out the champagne yet, but it is a better picture than we saw certainly 18 months ago. And in Asia, we see an opportunity really to deploy our software stack at scale. And again, win a couple of consolidation opportunities, right? For instance, in the early weeks of this current quarter, we have won a consolidation opportunity for an ASEAN-based telecoms company, which consolidated from 10-plus vendors to 2. So I feel consolidation will drive a lot of sort of growth for us and the software portfolio that we have, especially with Comviva, which is growing much, much faster than the rest of the company, is driving that differentiation. So that, in a nutshell, is where we are on comps. No significant increase in overall spend for the sector, but an increase in market share for us given our unique portfolio offerings and our incumbency for key clients.

Our next question comes from the line of Sandeep Shah from Equirus Securities.

Just one question in terms of deal TCV. So I do agree mega deals are lumpy and cannot repeat every quarter. But based on the efforts and the pipeline and the success ratio in terms of winning the deals, Mohit, is it fair to assume on an annual basis, we can now achieve $3.5 billion to $4 billion worth of new business TCV?

Well, I hate to make projections about the future. But yes, I just -- I do think it sounds reasonable, Sandeep. I mean we have certainly demonstrated that over the past 4 quarters, and I certainly don't see us going down from what we have accomplished. You will see some up quarters, some sideways quarters and some down quarters. But the overall trajectory for us has been steadily rising from $300 million plus to $500 million plus to $800 million plus to $1 billion plus this quarter.

And Sandeep, already the LTM for us is $3.5 billion if you look at the last 12 months. So as you rightly mentioned, the momentum needs to continue, right, if we have to go to the F '27 aspiration, what we've articulated 2 years back, executing that. But as Mohit said, there's lumpiness associated with that. But yes, that mark needs to be ballpark in that range as well.

Okay. And the last question, Rohit, for you in your opening remarks, you called out there are certain onetime or seasonal strength in the revenues. Can you repeat the same, where were it? Is it mostly to do with the BPO and retail in U.S. or also in Pininfarina, which you called out?

Yes. So there was marginal impact on the retail and BPO, but more around the European auto, which had some deliveries lined up, which will normalize next quarter.

Okay. So will this also have a margin headwind in the fourth quarter or no?

No, it won't have a margin headwind.

Our next question is from the line of Abhishek Shindadkar from InCred Capital.

Congrats on a good quarter. Two questions. The first is on the gross margin expansion. Have we reached the peak? Or there is still juice to be taken out on the gross margin side? That's first. And second, Mohit to you, it seems that we are probably on the favorable side of vendor consolidation deals in telecom. Outside of the furlough impact in this quarter, anything or any reason to believe the same or in contrast for the financial services space? Or if you can give a color in terms of the vendor consolidation deals in the financial services space?

Yes. So Abhishek, I'll probably talk about the margins first, the gross margin. So as you look at the first half, right, we articulated our improvement was predominantly driven by the improvements in the SG&A side and a lot of the Project Fortius efforts, including consolidation of our portfolio companies and various initiatives that we've driven that led to the margin expansion. And as we discussed about the second half, I had clearly articulated that our expansion will be more driven by the gross margins. I think it's a journey that will continue as we move forward, not just for the next quarter, but also for the next year, right, because all the efforts that we're driving around Fortius will be factored and focused around it, while some impact and improvement will continue in SG&A, but on a relative basis, majority of the contribution will come from gross margin.

Yes. And on the BFSI question, look, I think vendor consolidation is happening across sectors. It's just that BFSI has longer buying cycles and longer ramp-up cycles. We don't really have -- so for us, the BFSI story really is about, especially in the Americas and about an APJ, is really getting into new clients and then being able to ramp up, which is why I'm very enthused, for instance, like I said, by the signing up of one of the largest global banks headquartered in Japan or winning a transformation deal in Singapore or our preferred supplier list selection with one of the largest global insurers and the win that with the private bank, right? So we really have to be able to scale up in these accounts. That is what will give us the growth. Candidly, we're not really such a large incumbent in existing accounts that we have to fear vendor consolidation in the sector.

Our next question comes from the line of Vibhor Singhal from Nuvama Equities.

Congrats on a great all-round performance. Mohit, I have just one question and then a couple of questions for Rohit. I think you mentioned about the very good pipeline that you're seeing in the BFSI vertical. Just wanted to pick your brains on the manufacturing vertical. How are you seeing that as, let's say, over the next few quarters? We had heard a lot about the weakness in the auto segment, and there are a couple of illusions that we've already seen from the peers that maybe auto sector is showing signs of turnaround. You mentioned about the European auto as well. So how is the outlook in the overall manufacturing vertical, auto and ex of auto? Any color on that would be really helpful.

Yes. So look, I think the manufacturing vertical has done exceptionally well this quarter, right, both from a Q-o-Q perspective and a Y-o-Y perspective. But as Rohit pointed out, there were some sort of seasonal ramps that we saw in European auto, which will not recur next quarter. So that's a bit of a headwind for us. Overall, I think U.S. auto has stabilized, and we should start seeing some growth there over the next few quarters. We continue to build on our strength in aerospace. And you saw one of the large deal wins was in aerospace as well. So there will be some volatility because of European auto candidly in the next couple of quarters. But on the whole, I feel very comfortable with the manufacturing story that we have built, right? I think the expertise that we have built, the partnerships that we have built with the software providers, the lift that we're seeing because of the SAP upgrade cycles that makes me long-term confident about manufacturing. And also in manufacturing with the smart factory of the future, with physical AI, we see a lot of opportunities to build on a truly differentiated story within manufacturing, where we have a natural right to win because of our history and heritage and also because of the capabilities of the group. So near-term volatility, but medium to long term, significant opportunities. And that is just also backed up, right, by the performance in the current quarter.

Got it. Got it. And the pipeline also in the vertical looks good?

Yes. Yes, absolutely.

Rohit, just a couple of bookkeeping questions. Typically, we have seen in Q4, for the last 2 years, at least, we have seen a seasonality -- sorry, seasonality play into our numbers. We see kind of a 1%, 1.5% kind of a Q-on-Q decline. The seasonality will continue this year as well? Or do you see the business mix changing, and we might or might not see that kind of a seasonality?

Yes, Vibhor, the seasonality on revenue for us is more towards Q1 where we do see some impact on the platform, not really Q4. So I think the degree of that seasonality has definitely improved over the years. It's not as much as we had anticipated before, but it will continue. So we will see a Q1 pressure on seasonality still to happen, but that's not in Q4.

But not in Q4. So the last 2 years decline in Q4 was not a seasonal factor. It would have been very specific to those quarters.

Yes, it was very client and project-specific items. Seasonality for us is typically in Q1.

Got it. Got it. Also, if you could just take us through the margin walk for the quarter, the 100 basis point margin expansion Q-on-Q, would you be able to give the breakup as to how much we benefited from operational efficiencies, how much from INR depreciation, how much from other factors?

Yes, sure, sure. I think from a currency perspective, the improvement was marginal. It wasn't a big factor. Most of the improvement that you see is driven by operational improvement. Volume, of course, is some part of it, around 20 to 30 basis points is driven by margin and the rest is driven by Project Fortius, which is all operational improvement. And that's divided into various initiatives as we called out between delivery-led growth, pricing improvement, utilization improvement, fixed price projects that we continue to call out as a big lever where we continue to drive automation, embed AI and keep on driving what Mohit explained, redeploy people internally into new work, and that's why the revenue productivity also keeps on going up, right? So the natural -- all the projects around Fortius are contributing to that, and that's mostly contributing to the improvement.

Got it. Got it. And just one last question for me, just a clarification. So as of now, we have not decided on the wage hike for FY '26. So it's not -- as of now, it has not happened in Q4.

So it's undecided in terms of when it will happen, and we'll keep on sharing updates with you as we move forward, as Mohit mentioned, as we get more information on the evolution of new labor code, we'll keep on posted -- we'll keep you posted on the development, on the timing, et cetera.

The next question comes from the line of Sumeet Jain from CLSA.

Mohit, I wanted to first understand like in your ambition to grow higher than peer average in FY '27, which vertical other than telecom you are confident of to achieve that vision?

Fair enough. So look, if you look at the -- so first of all, it's not about only next year, right? Because at the end of the day, we're building a company for the long term. So we want to make sure that we are growing really across verticals. If you look at our portfolio, though, we have seen strong strength in manufacturing on the basis of the solutions that we've created, the capabilities that we have and the clients that we have. I continue to see growth opportunities there. If you look at our retail and CPG and travel, transportation, logistics portfolio, that has done extremely well. Candidly, I did not have such high hopes from it when we started, but under very strong leadership that we've had with Sampath Sagi and the others, that portfolio has done extremely well. And I'm very optimistic, bullish about our opportunities there. The portfolio that we have in BFSI is clearly very important because there is a large spend pool. We are creating capabilities. We have continued to hire exceptional quality talent on the market. And I have no doubt that, that will be a medium- to long-term growth driver for us. In the long run, I expect all of our verticals to do well, right? We have great capabilities. In some spaces, like, for instance, U.S. payer, right, it will take us time to build out capabilities, broader capability set and a deeper client presence. On the whole, for telco, for manufacturing, for insurance and payments and asset and wealth management, for the design-led capabilities in retail, those capability sets already exist, so it should be easier to ramp on that.

Right, Mohit. And I guess on your M&M Investor Day, you also, I think, alluded that once FY '27 vision is achieved, we will probably give another 3-year FY '30 vision. Can you give any glimpse of that? Will there be any change in strategy? Any further acceleration we might see on either order booking or on revenue growth pickup?

I think it's a little bit too early for that. All I can promise you is that it will be attractive and credible in equal measure like our previous plan.

Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.

Thank you. Over the last 21 months, we have really focused on strengthening the fundamentals of our business, investing in the right capabilities, building scalable platforms, sharpening our go-to-market execution and creating a resilient operating model. So the results that we see today, including the improved deal bookings, while also delivering margin expansion are a direct reflection of these efforts. As we look ahead, I'm going to be traveling to Davos to meet with our leaders and with our clients to also get a perspective on how technology is driving deeper interaction across industries, economies and societies. So thank you for joining us today. I believe we had an incredible quarter. Look forward to meeting you again next quarter.

Thank you. On behalf of Tech Mahindra Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.